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Highlights:
AIM Turmoil: The AIM faces a crisis as inheritance tax relief for listed companies is threatened, raising urgent warnings from industry leaders.
Sell-Off Risks: Experts predict a sell-off that could devalue a third of AIM's market, driven by advisor pressure to liquidate holdings.
Falling Values: With declining listings and £6 billion tied to tax relief, share prices could drop by 20-30% if the relief is abolished.
The Alternative Investment Market (AIM) is approaching a potential crisis, as concerns mount over the possible abolition of inheritance tax relief for companies listed on this junior market. Steven Fine, Chief Executive of Peel Hunt Ltd (LSE:PEEL), has raised alarm bells in a recent communication to the Financial Conduct Authority (FCA), suggesting that the removal of this tax break could lead to a significant market downturn.
Fine has indicated that such a move could trigger a sell-off, with estimates suggesting that up to a third of the market's total value could be at risk. Under current customer care regulations, advisors would feel compelled to recommend that clients liquidate smaller stock holdings if the tax relief were removed. This, in turn, could amplify selling pressure on AIM-listed stocks.
Fine's comments are echoed by Julia Hoggett, Chief Executive of the London Stock Exchange, who communicated similar concerns to City Minister Tulip Siddiq. Hoggett warned that the announcement of the tax relief's removal could lead to pronounced market volatility, as individual investors and inheritance tax (IHT) funds would likely rush to liquidate their holdings in companies that have benefited from the relief for years. She noted that the inherently illiquid nature of smaller companies would exacerbate the volatility, disproportionately impacting share prices across the board.
The AIM has seen a steady decline in the number of listed companies in recent years, with the current count around 704, collectively valued at approximately £76 billion. This contraction reflects the ongoing challenges faced by these companies in securing financing.
Peel Hunt has estimated that around £6 billion of funds have been allocated to AIM stocks benefiting from inheritance tax relief, alongside approximately £5 billion directly held by individual stakeholders. The removal of this capital could lead to a projected drop in share prices of between 20% to 30%, according to the broker’s analysis.
As the possibility of abolishing this tax relief looms, the future stability of AIM hangs in the balance. The implications of such a decision could resonate throughout the market, potentially destabilizing an already vulnerable sector and prompting urgent discussions about the long-term viability of the junior market.
